What is a Self-directed IRA?
A self-directed IRA is a type of individual retirement account designed to allow investors to diversify their retirement nest egg beyond traditional investments like stocks, bonds, ETFs and other high-risk alternatives. This individual retirement account is legally structured to work just like a Roth IRA and so, a self-directed IRA has the same contribution limits and tax advantages. However, a self-directed IRA does not restrict investors to conventional investment options because there are multiple nontraditional choices outside of the mainstream.
Investments Allowed in a Self-directed IRA
If you want to expand your investment horizon and boost your retirement reserve, you can consider these 6 rewarding options:
- Gold, Silvers and other Precious Metals
Gold, silver and other valuable metals are popular alternatives because they are considered to be real money which keeps your retirement covered against inflation. For this reasons, investors often diversify their financial portfolio with precious metals. While valuable metals won’t get you rich overnight, these are investments that yield attractive rewards in the long run.
Owning property, whether it is residential or commercial is a great way to diversify your retirement savings. While real-estate investments are subject to market fluctuations from time to time, they are sure to offer rich returns over the long haul. Investing in real-estate with a self-directed IRA is one of the most effective ways to maximize your retirement nest egg and enjoy greater profits. Self-directed IRA is an ideal solution if you are investing in real-estate because it brings you the flexibility to make your own investment choices along with checkbook control!
However, it is important to know that the real-estate investments in self-directed IRA cannot be used for residential living, either part-time or full-time. Also, all your real-estate IRA investments, expenses, taxes and insurance covers must be paid from your own individual retirement account.
- Private Businesses
You can also invest in private businesses either entirely or in part through a self-directed IRA. For instance, if you want to invest the funds from your self-directed IRA in a convenience store, you can do that. However, you should also be aware of the rules that govern the ownership of businesses within a self-directed IRA. It is best to seek expert advice from a professional before you make any decision because you need to make sure that your IRA-owned business yields returns when you retire and not immediately.
- Private Mortgages
Another lesser-known yet lucrative self-directed IRA investment is mortgage. Buying a mortgage makes you the banker for the property. Your IRA can then lend a borrower and the loan remains secured by the property. But, since you don’t own the property you don’t get the profits even if the value goes up. But, your investment is always backed by an actual asset and gives you real good returns. So while the risk of foreclosure crisis cannot be eliminated, the returns are higher than average!
- Debt Instruments
You can also invest in various debt instruments including tax liens and loans through a self-directed IRA. You can choose from different debt-investing platforms that are reputed and reliable for buying short-term real-estate loans. You can invest as low as $1,000 and generate significant income in interest if your investment is sheltered through a self-directed IRA.
- Digital Currencies
Bitcoin and other digital currencies are relatively new in the market but most people view them as the future of cash since they are capital assets. However, digital currencies are subject to taxes when sold at a profitable margin. This is why holding digital currencies in a tax-advantaged account like a self-directed IRA makes a wise investment decision.
Why Self-directed IRA
With employer-sponsored 401(k) and other retirement plans, you are restricted in terms of investment options and this greatly reduces your returns. If you want to compound your retirement reserve further and at a faster rate, self-directed IRAs should be your top choice. It allows you to make your own investment decisions at the right time by giving you checkbook control. So, if you want to make the most of your time and money now and enjoy a richer retirement reserve later, consider investments in self-directed IRA.
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— The Option Specialist